Layoffs a ‘last resort,’ remain undetermined

Published: Thursday, June 20, 2013 at 05:35 PM.

To build the budget, ARMC officials factor in expected patient volumes, the use of services and cost increases among other moving targets.

To make up for impending losses, ARMC has identified some cost-cutting measures in its service contracts and will rely on the reduced costs of doing business as part of the Cone Health system. The hospital already changed some of its operations to make up for funding lost when the sequestration went into effect in April, Hammock said.

“This year, we’re well behind budget. But we are in the black,” Hammock said, noting that a third of North Carolina’s hospitals reported losses last year.

The additional cuts in 2014, brought by the Affordable Care Act, reductions in Medicare and Medicaid reimbursements and other changes would be on top of those sequestration cuts.

And the uncertainty of legislative changes still looming in the General Assembly — such as sales tax reforms — make formulating the 2014 budget even more difficult, Hammock said.

“This is probably the most challenging I’ve ever seen it just because of the (fast pace of changes in regulation). The healthcare industry is being hit from all sides by reform measures and policy changes and payment reforms,” Hammock said.

“Because we are so highly regulated, decisions made in Raleigh and Washington have a direct bearing on the healthcare industry,” he added.

Though layoffs announced for Cone Health on Wednesday won’t impact Alamance Regional Medical Center, Burlington’s hospital is looking at a $12 million funding gap going into next year.

The shrinking revenue is due to the Affordable Care Act reforms and federal sequestration cuts. The $10- to $12 million-figure doesn’t include likely cuts to Medicare and Medicaid, a $2.5 million sales tax exemption and cuts from other legislative reforms that would impact ARMC hospital’s operating budget, Preston Hammock, ARMC’s president and chief operating officer, said Thursday.

Cone Health President and CEO Terry Akin announced plans Wednesday to lay off about 150 employees over the next three months to help trim $30 million from its budget. Those cuts will be made at all levels, Akin said, but don’t include positions at ARMC. The Cone Health system’s overall budget, including ARMC, is $1.7 billion.

ARMC’s annual operating budget is about $245 million, Hammock said. The projected $12 million in cuts represents about 5 percent of its annual budget. The hospital doesn’t have specific plans to cut employees but layoffs are a possibility, Hammock said.

“Staff cuts are always a last resort. I don’t have a specific plan (to cut staff) at the moment,” Hammock said. “There are many levers we hope we can pull before” layoffs occur.

Employee salaries and benefits make up more than half of the $245 million in annual expenses, he said.

The 2014 budget would go into effect Oct. 1. It needs to be formulated and approved by the end of July, Hammock said.

To build the budget, ARMC officials factor in expected patient volumes, the use of services and cost increases among other moving targets.

To make up for impending losses, ARMC has identified some cost-cutting measures in its service contracts and will rely on the reduced costs of doing business as part of the Cone Health system. The hospital already changed some of its operations to make up for funding lost when the sequestration went into effect in April, Hammock said.

“This year, we’re well behind budget. But we are in the black,” Hammock said, noting that a third of North Carolina’s hospitals reported losses last year.

The additional cuts in 2014, brought by the Affordable Care Act, reductions in Medicare and Medicaid reimbursements and other changes would be on top of those sequestration cuts.

And the uncertainty of legislative changes still looming in the General Assembly — such as sales tax reforms — make formulating the 2014 budget even more difficult, Hammock said.

“This is probably the most challenging I’ve ever seen it just because of the (fast pace of changes in regulation). The healthcare industry is being hit from all sides by reform measures and policy changes and payment reforms,” Hammock said.

“Because we are so highly regulated, decisions made in Raleigh and Washington have a direct bearing on the healthcare industry,” he added.

It’s believed ARMC will have to absorb $50 million in lost revenue due to the Affordable Care Act over 10 years and another $10 million from sequestration during that same time, Hammock said.

ARMC has operated within a 3-percent margin of its projected budget for the last 13 or 14 years and has consistently made money, Hammock said.

Though ARMC merged with Cone Health on May 1, the timing of the merger means that ARMC is creating its own budget this year. In future years, the merger will have more impact on ARMC’s budget, Hammock said.

A $60-million expansion to ARMC’s emergency department, cancer center and surgical areas is being paid for over time and shouldn’t place a significant burden on the hospital’s annual expense budget. Construction on that project began earlier this year and is expected to be complete sometime in early 2014.

“It’s being capitalized over time. We’re able to do that based on how good we are at managing our day-to-day expenses and … saving for years,” Hammock said.

The expansions are to areas projected to see a high volume of patient growth in the coming decade. ER visits are projected to reach 70,000 in 2014.